This Week: Deficit Mania!

"Quote" of the Week: "The sense that they will be protected"

The Corrupt and Illegitimate Deficit Commission

Deficit Mania as Class War

Greetings,

I've been immersed for three weeks in reports, discussions, statistics, and outlandish and cruel fantasies about the federal deficit. I have come to call it Deficit Mania, for reasons that I hope will become apparent to you as you read this issue of the Notes.

Just hours before I typed these words, the National Commission on Fiscal Responsibility and Reform, President Obama's Reduce-The-Deficit Commission, has just completed its work. I make the case here that its work was the escalation of the ongoing Class War in the United States. Many non-corporate types have come to refer to the Commission as the Cat Food Commission since, as James Ridgeway Mother Jones recently put it, "that's what its victims will be forced to eat once the commission gets done slashing away at their modest entitlements."

Based upon the wise feedback of Marjorie, my editor, I think the next issue of the Notes will contain some more nuts-and-bolts about the various deficit reduction proposals floating around. I might even take a look at a question that almost nobody ever asks: Why does the federal government borrow any money at all?

But that's all for the next issue. For now: Deficit Mania!

Nygaard

"Quote" of the Week: "The sense that they will be protected"

The ever-reliable National Academy of Social Insurance published Social Security Brief #35 last month, in which they featured an article called "Strengthening Social Security for the Long Run." In it they mentioned a recent poll that they commissioned, quoting one Daniel Franklin of the Benenson Strategy Group, which conducted the NASI Social Security poll. Franklin said that,

"What we're seeing overall… is that the conventional wisdom among Washington elites does not match the attitudes of the public. For years, the media and pundits have drummed up concerns of a crisis that will require cutting back on our commitment to retirement security. As the economic crisis has eroded the government's fiscal position, this talk has increased. But Americans look at the insecurity they're seeing all around and take the opposite approach. Social Security, for 75 years, has provided Americans with the sense that they will be protected against the vicissitudes of the economy, the market, and their own fortunes. Their response to this recent moment of insecurity is not to pull back from our responsibility to one another, but in fact to double down."

The Brief, "Strengthening Social Security for the Long Run," can be found HERE.

The Corrupt and Illegitimate Deficit Commission

Based upon my informal survey of friends and acquaintances, a lot of people are unaware that President Obama appointed a special commission last February called the National Commission on Fiscal Responsibility and Reform, commonly known as the Deficit Commission. (Not that commonly, actually, since it's not known much at all. I'll just call it the Commission.) This Commission began meeting in April, supposedly attempting to fulfill its charge of "achieving fiscal sustainability". Whatever that means, the Commission just released its report, which you can find here. Look for a link to "The Moment of Truth." That's actually the title. I'm not kidding.

Before you read the 66-page report, let's have a look at who is on this "deficit commission" and what we know about what they've been up to. It's not that easy to do because, even though they've been meeting for months, most of the meetings have been in secret. Between the time of its first public meeting on April 27th and the beginning of November, there were a total of only 45 articles in major newspapers that mentioned the Commission in their lead paragraphs—fewer than 8 articles per month. The Washington Post had a total of six such articles, only three in the news columns (the others being editorials). The Wall Street Journal had two. The New York Times had a total of one piece, and that was an opinion piece.

It wasn't until November 10th, when the Commission's co-chairs released their personal recommendations, that the Commission's work began to see the light of day in the media. Since we can expect the media to do a poor job of helping people understand what is going on here, I'll tell you a little bit about this Commission.

The Presidential Executive Order that created the Commission gave it a mission:

"The Commission is charged with identifying policies to improve the fiscal situation in the medium term and to achieve fiscal sustainability over the long run. Specifically, the Commission shall propose recommendations designed to balance the budget, excluding interest payments on the debt, by 2015. This result is projected to stabilize the debt-to-GDP ratio at an acceptable level once the economy recovers. The magnitude and timing of the policy measures necessary to achieve this goal are subject to considerable uncertainty and will depend on the evolution of the economy. In addition, the Commission shall propose recommendations that meaningfully improve the long-run fiscal outlook, including changes to address the growth of entitlement spending and the gap between the projected revenues and expenditures of the Federal Government."

The Commission has been meeting regularly since April. Anyway, I think it has. As I mentioned, the meetings have been mostly secret. There have been some public meetings, and one "Public Forum" on June 30th where about 90 groups and individuals got to speak, however briefly. Much of that was very interesting and important; none of it was covered by the media.

Stacking the Commission

Given that even the public meetings of this important commission were ignored by the media, it isn't too surprising that the media has failed to even attempt to learn what was going on behind the closed doors of the secret meetings. It wasn't until November 10th—too late to have much of an impact—that the Washington Post published the results of an investigation into the workings of this mystery commission. True, they buried it on page 27, but at least they investigated a little bit.

The headline read "Many Deficit Commission Staffers Paid by Outside Groups," and the article reported that "about one in four commission staffers is paid by outside entities, many of which have strong ideological points of view about how to tackle the deficit."

That's putting it mildly. As the article points out, "the salaries of two senior staffers, Marc Goldwein and Ed Lorenzen, are paid by private groups that have previously advocated cuts to entitlement programs. Lorenzen is paid by the Peter G. Peterson Foundation, while Goldwein is paid by the Committee for a Responsible Federal Budget [CRFB], which is also partly funded by the Peterson group."

In fact, Mr. Goldwein is not only paid by CRFB, he is their Policy Director, in which capacity he has written that "Social Security is unsound." Likewise, Lorenzen is not only paid by the Peterson Foundation, but recently became their "Senior Policy Advisor to the CEO" of that organization.

With such a staff, it's not surprising that the recommendations of the Deficit Commission in many ways echo the recommendations of another commission: The Peterson-Pew Commission on Budget Reform, which is another name for... The Committee for a Responsible Federal Budget. It's a small, small world, indeed, when your name is Peterson. (More on Peterson in a moment.)

"Every Possible Voice"

The Executive Director of the Deficit Commission is one Bruce Reed, who reportedly said that "the staff includes a broad range of views." Added Mr. Reed, "We've got wonks from across the spectrum who have been working on this issue for years. Every possible voice from left, right or center has a voice on the commission." This is so obviously false that I don't know why he would even say it, other than that he shares the "inside-the-beltway" idea that the range of political thought in this country extends no further than Democrats and Republicans. Consider that Mr. Reed is "on leave as president of the centrist Democratic Leadership Council" to serve on the Commission. Who knows what "centrist" means, but Newsweek, in a story in the year 2000, described the DLC as a "centrist" group that "eschews liberal dogma and promotes market-oriented approaches to policy." Market = Centrist. Who knew?

If it's true that Market = Centrist, then logically the funding for a "centrist" organization would be expected to come from corporations. Sure enough, Newsweek reported that, as of 1999, "Among the DLC's biggest benefactors (contributions of between $50,000 and $100,000) were ARCO, Chevron and the drug giant Merck. Other big underwriters include Du Pont, Microsoft and Philip Morris (which has kicked in $500,000 since Lieberman became DLC chairman)." (That's Joe Lieberman, another "centrist.") And we should also mention that the DLC has gotten money from Koch Industries. Koch has lately been in the news for bankrolling the Tea Party "movement."

So there we have the "centrist" staff leadership of the President's Commission.

At its one "public forum" on June 30th, some amazing testimony was offered. I think the most compelling was presented by economist James K. Galbraith. He spoke on behalf of Americans for Democratic Action, and began his comments by telling the Commission that "Your proceedings are clouded by illegitimacy." He made four main points in support of this comment, which I will summarize here in hopes that it will help people resist any temptation to take the Commission's final report seriously.

Galbraith pointed out first that "most of your meetings are secret... There is no justification for secret meetings on deficit reduction."

His second point was that "there is a question of leadership. A bipartisan commission should approach its task in a judicious, open-minded and dispassionate way. For this, the attitude and temperament of the leadership are critical. [Commission co-chair Alan Simpson]
"has plainly shown that he lacks the temperament to do a fair and impartial job on this commission."

"Third," adds Galbraith, "most members of the Commission are political leaders, not economists..." and "In general, it is impossible to have a fair discussion of any important question when the professional participants in that discussion have been picked, in advance, to represent a single point of view."

Finally, says Galbraith, "Conflicts of interest constitute the fourth major problem. The fact that the Commission has accepted support from Peter G. Peterson, a man who has for decades conducted a relentless campaign to cut Social Security and Medicare, raises the most serious questions. Quite apart from the merits of Mr. Peterson's arguments, this act must be condemned. A Commission serving public purpose cannot accept funds or other help from a private party with a strong interest in the outcome of that Commission's work. Your having done so is a disgrace."

It's an easy name to remember: Pete Peterson. It's a good one to remember, too, because if one looks into almost any report that recommends "austerity"—which is the preferred term for proposals that benefit rich people and corporations at the expense of the rest of us—one will most likely find Peterson's fingerprints. It's amazing what a billionaire can do if he sets his mind to it. (Or she; 90 percent of U.S. billionaires are male.)

After his comments on illegitimacy, Galbraith goes on to explain at some length the economic issues being considered by the Commission. This testimony is the best brief summary of current economic issues for the layperson that I have seen. His testimony can be found on the Commission's website. Specifically, it's HERE.

So much for the Commission. Now let's think for a moment about what this deficit talk is really all about.

Deficit Mania as Class War

This week the official report of the National Commission on Fiscal Responsibility and Reform is out, and it's focusing all sorts of attention on THE DEFICIT. As I point out elsewhere in this issue, there are quite a number of proposals being put forward on this subject, and not all of them come from Pete Peterson. As usual, the media focuses so slavishly on the official proposals, and on the details which the pundits and establishment commentators say are important, that it becomes difficult to see what is really at stake here. Why are we talking about the deficit, and about the national debt, and why does it matter?

Let's start with the basic issue: Inequality. Since the first meeting of the Deficit Commission in April, a search of the major media in the U.S. looking for articles that mention "budget deficit" and "Commission" yields 2,397 articles (only about 45 of which had the Commission in the lead paragraphs). However, when we add the word "inequality" to the search, the total number of articles comes to... 14. And the Deficit Commission report itself never mentions the word "inequality." So the average USAmerican may be forgiven for failing to see any connection between inequality and the federal budget deficit. Yet I think that's what it's all about.

In an interview published on July 18th of this year in MRZine, the online version of Monthly Review, Paul Jay interviewed economist Robert Pollin. The interview was published under the title, "Productivity Is Up, So Why Cut Social Programs?" (The question in the title is the question we should all be asking at the beginning of any discussion of the "shared sacrifices" that everyone says we need in order to reduce the deficit. I'll return to that in a moment.)

In response to a question about the talk of cutting Social Security in order to address the deficit, Pollin responded:

"Let's think about this in really basic terms. Yes, in Europe and in the United States, the idea is filtering through that somehow the level of social expenditure is something that we can't afford, that we have overspent relative to where the economy is and what we can afford. But how could that actually be true if we think of this in longer term, when average productivity continues to rise? So the point is, when the average productivity rises, that means the income pie is getting bigger. And so if the income pie is getting bigger every year, then why aren't we able to afford things that we were able to afford 30 years ago? The answer is: of course we can afford it, but we have to distribute the shares of the pie more fairly, more evenly. So that is the simple answer here."

In other words, in really basic terms, the "simple answer" to why we can't all share in the always-increasing wealth of the country is that the shares of the pie are not distributed "more fairly, more evenly." That is: Inequality.

How unevenly is the income pie distributed in the United States? Very. A 2008 study from the OECD (Organization for Economic Co-operation and Development, a group of the world's wealthiest countries), reported that "The United States is the country with the highest inequality level and poverty rate across the OECD, Mexico and Turkey excepted."

That's just the "income pie." There's also the matter of wealth. Income is what you earn each year, and wealth is how much you end up with. For example, if you have a million dollars already and you earn 100,000 dollars this year, that 100,000 is your income and your wealth at the end of the year will be that 100,000 plus the million you already had. A couple of years earlier (August 2005) the Federal Reserve Bank of Chicago issued a report on wealth inequality that said, "Among [OECD] countries, the United States exhibits the highest degree of wealth concentration, with the largest shares of total wealth in the hand [sic] of the richest percentiles of the wealth distribution."

The Deficit and Inequality

We have a tremendously unequal society because we rely more than most countries on what is called "the market" to distribute our nation's wealth. (It's not really a market, so I put it in quotation marks; a subject for another Nygaard Notes, perhaps). The function of the "market" is to concentrate wealth. Unfortunately for the recipients of this concentrated wealth, most people don't want to see wealth so concentrated.

There are a couple of things that come to mind when we think about what might be able to challenge this concentration of wealth. One is the presence of a powerful labor union movement. The labor movement in the United States at the moment is at perhaps its weakest level ever. Since peaking in 1958, union membership has been falling, ever-more rapidly since the rise of Ronald Reagan in 1980. The percentage of private sector workers in unions in the U.S. fell to 7.2 percent last year, the lowest level since 1901. There are many reasons for this, but one of the major effects was summarized by Bill Moyers in an October 29th speech. He said: "Since 1980 the economy has ... continued to grow handsomely, but only a fraction at the top have benefitted. The line flattens for the bottom 90% of Americans. Average income went from that $30,941 in 1980 to $31,244 in 2008. Think about that: the average income of Americans increased just $303 dollars in 28 years. That's wage repression."

Besides labor unions, there is only one other institution that has the power to challenge the priorities of the "market," and that is government. And here is where we see the rise of Deficit Mania.

I talk all the time in these pages about how the economic inequality wrought by this wage repression—need I say that the income of the top 10 percent is not stagnating?—is morally and ethically wrong. But even if it weren't "wrong," such inequality is not sustainable, and here's why: The U.S. economy depends on people buying stuff, and rich people can't buy enough stuff by themselves to make it work. Consider:

November 25, 2010, Bloomberg News: "BMW and Daimler's Mercedes-Benz, the world's two largest makers of luxury autos, will shorten Christmas breaks at their factories because of surging demand for new models."

July 15, Washington Post, Headline: "Companies Pile up Cash but Remain Hesitant to Add Jobs." Lead paragraph: "Corporate America is hoarding a massive pile of cash. It just doesn't want to spend it hiring anyone. Nonfinancial companies are sitting on $1.8 trillion in cash, roughly one-quarter more than at the beginning of the recession."

Get it? Rich: Recession: Richer. How does this happen? Sell more high-end stuff, refuse to hire workers by choosing instead to work the people you have harder, and let the millions who don't have jobs go buy some lottery tickets.

This reality, which has been going on for far longer than the current recession, was masked for years by the fantastic increase in the value (on paper) of most people's main asset: their house. So people borrowed against their houses and kept spending until the housing bubble burst and left people with nothing to spend but their inadequate wages or their inadequate unemployment checks. Now there's no job and no equity in the house—often, no house!—so they're not borrowing money or spending money or paying payroll taxes. Thus, a growing deficit.

In summary: There's plenty of cash out there, but it's mostly in the hands of wealthy people and corporations. If it were distributed more equally we'd all be better off. Besides labor unions, the only institution that could possibly force any meaningful redistribution is government, through its power to tax and spend. In the short term, that means taking from the rich (taxes) and spending for the common welfare (stimulus, infrastructure, education, unemployment, re-training, and so forth).

It's Not About "Shared Sacrifice"

This idea of redistribution is seriously frightening, and thus hated, by wealthy people and corporations, as well as the politicians and media who serve them (or are them). So it's time for DEFICIT MANIA! If you read the newly-released Deficit Commission report you'll read all about the "shared sacrifice," which any "sensible, realistic plan requires."

Don't believe it. It's about inequality, and the shrinking-but-still-real capacity of the government to address it through people-friendly programs and job creation. Back in 2003, in Nygaard Notes Number 189, I wrote these words:

"A little-known secret in this country is that we have more than just one government. In fact, we have two, which might be called a Business Government and a Popular Government. 'The' government in the United States is mostly a Business Government, but not entirely. The tension between the two is what is often referred to as 'class warfare.'"

The political strategy of many so-called "conservatives", including some Tea Partiers and members of the Deficit Commission, is sometimes referred to as a "starve the beast" strategy. The idea is to cut taxes (that's the "starving" part), which produces budget deficits, which are then cited as the reason to force a reduction in the size of government. They say that the "beast" is the government, but it's really only the Popular Government they want to "starve." That's exactly what we're seeing now. The code for Popular Government these days is "entitlement programs."

Despite the fact that the Deficit Commission ended up failing to make a recommendation, I'm afraid the Washington Post is correct when they say, as they did on December 2nd, that "the commission has already attracted more attention and received more respect than nearly anyone predicted." And the Associated Press reported after the failure that "Panel members said the commission's work had fundamentally changed the national debate on the deficit."

What they mean is that we all are now expected to talk about "shared sacrifice," and "painful choices," and "adult conversations" about "austerity." Our job—that is, those of us in the bottom 90 percent of the income scale—is to keep talking about Deficit Mania as simply the latest attempt by supporters of the Business Government to impose even greater levels of inequality on We The People.

In other words, we really are engaged in a Class War, in which Deficit Mania is only the most recent battle. The National Priorities Project reminds us that Deficit Mania is a "debate that could well shape our nation for decades." I'll talk more about it in the next Nygaard Notes.